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Acquiring patent portfolios of failed or failing technology companies

Recently, the market raised its level of awareness and began to more fully recognize the intrinsic value of patents. This recognition was highlighted during the Nortel patent auction when Rockstar Bidco LP, a consortium of convenience comprising tech giants Apple, Microsoft, RIM and others, acquired Nortel patents for the staggering amount of $4.5 billion.

Acquisition opportunities

It would appear that various forces are now combining to increase the level of patent acquisition activity. In recent years, innovation has continued in computer and Internet-related disruptive technologies. Efforts have also been concentrated in creating the next disruptive technology, examples of which include biotechnologies, clean technologies, and nanotechnologies.

Many businesses developing these technologies are at a fairly early stage and fuelled by private investment and government funding. Unfortunately, in the present environment such funding is disappearing, leaving these businesses vulnerable to failure. As in the Nortel situation, this creates an opportunity for financially healthy businesses to acquire patent assets of failing or failed businesses who have been working towards developing the next disruptive technology. The particular attraction to the patents in such cases is that they may cover important aspects of a disruptive technology, thereby providing monopoly power over a potentially significant market.

Due diligence

Of course, any patent acquisitions in this environment should be carefully considered to understand their potential pitfalls and limitations. For each patent (or pending application), it is important to understand the scope of protection afforded by the claims and whether such patent scope covers meaningful technology that will provide commercial advantages in the marketplace. It is also important to assess the validity of the subject patent or pending application and confirm the duration of the patent term.

For pending applications, final determinations on patentability may not have been made. It is thus important to understand the technology space and the pre-existing technologies that are present, and assess whether the claimed subject matter is patentable over such pre-existing technologies. Even for issued patents, it may be worthwhile conducting independent prior art searches to identify pre-existing technologies that may have been missed during examination at the patent office and may affect the validity of the claimed subject matter.

Apart from prior art considerations, but as equally important, it may be worthwhile to review the complete file histories of the subject patents and patent applications, with a view to identifying any other defects that may have arisen during the patent prosecution process and may affect validity (or, in the case of pending applications, patentability). Such defects may relate to insufficient description of the claimed subject matter, failure to describe best mode, or failure to comply with the duty to disclose information material to patentability under US patent law.

Pending vs. issued patents

Even when claim scope is not optimal, or other defects are present which may affect the available scope of patent protection, it may still be possible to improve the quality of patent rights. There is greater flexibility with pending applications to optimize claim scope or correct other defects than there is with issued patents. Even if defects cannot be corrected within the confines of the pending application, the opportunity to “re-file” (strictly speaking, this would be a completely new patent application filing) for the same invention, with a higher-quality patent application, may still exist so long as no patent bars have been triggered (such as by public disclosure of the invention) in the interim. Where jurisdictional gaps in patent protection exist, it may still be possible to file patent applications in jurisdictions missed during the initial wave of patent filing by the original owner, but again, so long as no patent bars have been triggered in the interim. Also, there may be features for which patent applications have yet to be filed and for which the filing opportunity still exists; it may be helpful to identify and include such technologies in the context of the transaction.

For issued patents, claims may be optimized, or other defects may be corrected, through post-grant procedures made available in the jurisdiction in which the patent has been granted (e.g., in Canada, “reissue,” “re-examination,” and “disclaimer” are available under Canadian patent law, depending on the circumstances).

Summary

For failing or failed companies, it should not be surprising that claims may not be optimal or other patent protection defects are present. Financially troubled companies typically conserve their financial resources by reducing their spending on patent-related expenses, potentially resulting in patent quality being compromised. By making responsible investigations of the patent assets being purchased, the likelihood of overpaying for the technology or making a bad purchase is greatly reduced. Even when the transaction goes through, by having made these investigations the purchaser is aware of any actions that should be taken to improve the quality of the patent assets. This is important, because when claims must be optimized or other defects must be corrected, time is usually of the essence and any action to optimize claims or correct other patent defects must not be delayed, and should certainly be taken as soon as possible after the purchaser assumes control over the patent assets.